Interest rate speculation continues to effect Sterling

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It was a difficult week for Sterling last week as the UK's inflation rate slowed to 4% in March, making a May interest rate rise from the Bank of England's monetary policy committee unlikely, giving investors no encouragement to buy Sterling. There was more good news on Wednesday for the UK when employment rose to its highest rate in two years on Wednesday. Despite this encouraging news, the British Retail Consortium painted a dismal picture for UK retailers with the largest fall of sales on record.

Sterling is rising and falling on interest rates speculation at present and the economic data released on a daily basis will take on added significance in the build up to the May rate announcement. By that time, the MPC will have the preliminary set of results for first quarter gross domestic product and a strong recovery from the fourth quarter contraction may give policy makers the impetus to begin raising interest rates.

Sterling remained largely unchanged against the major currencies towards the close of trading on Friday, as the focus switched to events in the Eurozone and the US. Sterling managed to make some gains towards £/€ 1.1340 against the Euro for a second day, after Ireland's credit rating was cut by two levels, indicating that the sovereign debt crisis has yet to be contained.

Coupled with concerns that Greece will default on its debt has seen the Euro fall against the Dollar, Yen and Sterling. The Dollar also benefited from reports that US consumer prices rose for a ninth straight month, led by an increase in food and fuel costs. The rise in inflation may add to pressure on the US Federal Reserve to start raising interest rates.

This week is a shortened week because of the long Easter weekend. In the UK, the Bank of England minutes are released midweek with analysts looking to see whether last month's 6-3 vote to keep rates at 0.5% was maintained. Public sector finances are also released on Wednesday, followed by retail sales data the following day. The housing market takes the focus in the US, with housing starts on Tuesday and existing home sales on Wednesday.